Double Bottom is a technical analysis term. It refers to the chart pattern that resembles a “W”. It’s formed when a price drops and rebounds consecutively from a particular level. This pattern is bullish as it demonstrates a weakness in a selling trend and pre-indicates a potential buying trend in the market. It is exactly the opposite of a double-top pattern.
For example, if gold prices drop and rebound from $1860 twice. That makes $1860 a double bottom level, which means that we may see another pullback or buying behavior if the prices test this level in the future.
A Double Bottom is a chart pattern where the price holds a low two times and fails to break down lower during the second attempt, and instead continues higher.
The pattern is characterized by a distinct drop in price, followed by a slight reversal (or bounce) with a second drop occurring soon after to either the same or similar level as the first before another, significant reversal so that the chart appears to take on the form of the letter “W“.
The Double Bottom reflects very strong levels of support and often indicates a strong change of trend. Double Bottoms appear in a downtrend and reverse it to the upside as the price breaks through the resistance line.
It is considered a bullish reversal chart pattern since the price holds a low two times and eventually continues with a higher high.
The bounce between the two lows should be moderate. The pattern is confirmed once the price reaches a higher high than the top of the bounce between the two lows.
When that resistance level is broken, it confirms a bullish trend reversal.
Premature breakouts can be a problem in Double Bottoms as they occur frequently, depending on the bottom shape.
The Double Bottom, along with its alter ego, the Double Top, is easily one of the most recognizable chart patterns.